Net Branch Launching U.S. Operation

In an announcement Wednesday, MortgageBrokers.com Holdings Inc. introduced its strategy and limited-availability franchise model to small- and medium-size U.S. enterprise brokers.

The company, which claims its franchising strategy has been a success in Canada, says the United States is poised for its “paradigm-shifting” model.

“Given the current business and economic climate, we strongly believe this is the right time for us to introduce our business model,” commented CEO Alex Haditaghi in the announcement.

While U.S. mortgage originations grew to $3.8 trillion last year, the interest rate environment continues to experience upward pressure, he explained.

“And with tougher competition from larger, more established players, an estimated 40,000+ [small- and medium-size] brokers in USA will find it increasingly difficult to endure in this competitive market,” Haditaghi added.

However, John Lewis, president of National Compliance Services, doesn’t believe “the pressure on small brokers necessarily comes from large lenders nor do I think that a big franchise program is the solution that small brokers need,” he said in an e-mailed statement. National Compliance is affiliated with MortgageDaily.com advertiser Cross State Loans.

Lewis believes that most of the pressure is coming from federal and state regulators in the form of RESPA compliance, licensing, predatory lending and fee disclosure.

“For instance, HUD will not allow any of its mortgagees to be involved in a franchise of any kind, consequently some small brokers would have to surrender their HUD credential and stop originating FHA loans,” causing some brokers to lose well over 50 percent of their business, Lewis added.

George Allen, senior vice president of Superior Mortgage, also noted franchising violated guidelines of HUD and most state licensing agencies.

MortgageBrokers.com said its strategy of consolidating small- and medium-sized enterprise brokerages into a scalable operating entity allows recruits to better compete in the industry through the reduction of operating costs, expansion of a national brand, diversification of product lines and investment in technology.

The Canadian mortgage broker is reportedly currently taking applications for master franchises, which are initially granted a 25-year agreement to operate in a defined territory in which they can then establish regional offices that can issue individual franchise units, according to the company’s Web site.

MortgageBrokers.com expects to have franchises established in every U.S. state by the end of 2006 and believes “the strategic sale of master franchises will add significant presence and revenues to the company,” according to the announcement.

“Franchise opportunities can speak of ‘increased revenue’ and ‘nationwide access through the network of franchisees,'” Lewis commented. “This ‘access’ can be costly and inefficient with regard to getting that loan closed.”

Additionally, there “is so much financial pressure on small brokers already that most of them simply cannot afford a ‘franchise fee’ as well as a royalty fee,” Lewis said, adding that many small brokers would be better off in a branch network program.

“The branch industry has matured to a level where it is most often the best solution to problems surrounding compliance, affordable nationwide access, products, pricing and fee disclosure,” the executive added. “Most Branch programs today provide mortgage banking and can provide their branches with products that do not require fee disclosure.”